Another GDP Revision, Housing & Manufacturing Slow: What We Learned During the Week of March 21-25

While GDP was a bit better than previously believed during the final days of 2015, housing and manufacturing data has the economy crawling early this year. Here are the 5 things we learned from U.S. economic data released during the week ending March 25.

#1Even with another upward revision, Q4 economic activity was unexceptional. The Bureau of Economic Analysis originally estimated Gross Domestic Product (GDP) grew at a seasonally adjusted annualized rate of 0.7% and then raised the growth estimate to +1.0% last month. The newest and “final” revision released this past week puts economic growth during the final 3 months of 2015 at +1.4%. This was still below Q3’s 2.0% growth rate and Q2’s expansion of +3.9% and leaves GDP growth for all of 2015 at +2.4%, matching 2014’s moderate rate of expansion. The latest upward revision to Q4 GDP was the product of higher than previously believed levels of personal spending and exports. In the same report, we learn that corporate profits plummeted 7.8%, its 4th drop in 5 quarters. 032516graphicsThis was the largest quarterly percentage drop in corporate profits (after adjustments for inventory valuations and capital consumption) since Q1 2011. Next month, we will get the 1st estimate of Q1 GDP, with current data suggesting that economic growth has continued to muddle along. 

#2For example, it appears that economic growth slowed in February. The Chicago Fed National Activity Index (CFNAI) dropped 70-basis points to a reading of -0.29. February’s loss essentially gave back January’s gain and represented the 6th month over the past 7 in which the CFNAI was negative. The 85 economic indicators that make up the CFNAI are categorized into 4 groups, all of which deteriorated from their January readings. Falling sharply from the previous month were indicators associated with production/income (down 50-basis points to -0.21) and employment (off 16-basis points to +0.03) while measures for consumption/housing (off 4-basis points to -0.09) and sales/orders/inventories (off a point to -0.03) slipped more modestly. Even with February’s sharp reversal, the CFNAI’s 3-month moving average improved by 5-basis points to -0.07. This was the 5th straight month in which the moving average was negative (albeit its best reading since last September), indicative of a U.S. economy growing at a below its historic trend rate.

#3Sales of previously owned homes slumped during February. Existing home sales declined 7.1% during the month to a seasonally adjusted annualized rate (SAAR) of 5.08 million units. Even with the drop, the National Association of Realtors reports that sales were still 2.2% above that of a year earlier. Sales activity slowed in all 4 Census regions, led by double digit percentage declines in the Northeast (-17.1%) and the Midwest (-13.8%). On the flipside, sales were above their year ago levels in 3 of 4 Census regions, with sales holding steady with their February 2015 pace in the Midwest. NAR attributes the sales weakness to continuing tight inventories. There were 1.88 million homes available for sale at the end of February, the equivalent to a 4.4 month supply. The resulting median sales price for homes sold during the month of $210,800 was 4.4% above year ago levels. Beyond tight inventories, the press release cites the January blizzard in the east coast and stock market volatility as “play[ing] a role in February’s lack of closings.”

#4Meanwhile, new home sales eked out a modest gain during the same month. The Census Bureau places new home sales at a seasonally adjusted annualized rate (SAAR) of 512,000 units. This was up 2.0% from January and the 4th straight month above a SAAR of 500,000 units but it was 6.1% below year ago levels. All of the sales gain occurred in the West with a 38.5% bump. Sales fell in the Northeast (-24.2%), Midwest (-17.9%) and South (-4.1%). Inching up were inventories of unsold new homes as there were 240,000 new homes available for sale at the end of February, up 1.7% from January and 17.6% from a year earlier. This was the equivalent to a 5.6 month supply, up from a 4.9 month supply of homes available for sale at the end of February 2015.

#5Durable goods orders weakened in February as January’s show of strength was fleeting. The Census Bureau reports new orders for durable goods dropped by $6.6 billion to a seasonally adjusted $229.4 billion (+1.8% vs. February 2015). Orders for transportation goods fell 6.2%, including sizable drops for the typically volatile data series for both civilian (-27.1%) and defense aircraft orders (-29.2%). Orders for motor vehicles grew 1.2%. Net of transportation goods, core durable goods orders dropped 1.0% during the month and were 0.5% below their year ago pace. Falling were orders for electrical equipment/appliances (-2.8%), machinery (-2.6%), fabricated metal products (-1.2%) and computers/electronics (-0.9%). Business investment, as measured by new orders for nondefense capital goods net of aircraft, dropped 1.8% during February. Also falling during the month were shipments of durable goods (-0.9%), non-transportation durable goods (-0.7%) and nondefense capital goods net of aircraft (-1.1%).

Other data released over the past week that you might find of interest: 
Jobless Claims (week ending March 19, 2016, First-Time Claims, seasonally adjusted): 265,000 (+9,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 259,750 (-12.2% vs. the same week a year earlier).
FHFA House Price Index (January 2016, Purchase Only Index, seasonally adjusted): +0.5% vs. December 2015, +6.0% vs. January 2015.
Regional and State Employment (February 2016): Number of states with nonfarm payrolls growth vs. January 2016: 36 and the District of Columbia.  Number of states with nonfarm payrolls growth vs. February 2015: 43 and the District of Columbia.

The opinions expressed here are not necessarily those of Kevin’s current and previous employers. No endorsements are implied.

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